Market Update: Warnings Weigh on Stocks - TheStreet

(Updated from 9:38 a.m. EDT)

Stocks stumbled lower out of the starting gate this morning as big-name additions to the earnings confession brigade and a dour note from

Goldman Sachs

on tech earnings put investors in a foul mood.

Applied Micro Circuits

(AMCC)

lowered its performance targets for the second quarter last night and

Merrill Lynch

(MER)

did the same this morning, aggravating worries about the slowing economy and battered corporate earnings.

Some strong economic data for May released this morning was doing little to improve sentiment.

Durable goods orders in May unexpectedly rose 2.9%, while consumer confidence also climbed in June, marking its second straight improvement.

Just before 11 a.m. EDT, the

Dow Jones Industrial Average was off 99 points, or 0.9%, to 10,405. The

Nasdaq Composite Index shed 24 points, or 1.2%, to 2027. The

S&P 500, which tracks the broader market, eased 12, or 1%, to 11207.

"I think we'll have a down day and we'll stay down," said Jay Meagrow, vice president of trading at

McDonald

, who speculated the Nasdaq could decline to around 1980 today.

Citigroup

(C) - Get Report

seems to be down because of the Merrill news. Applied Micro will take

Advanced Micro Devices

(AMD) - Get Report

along with her. People are going group by group."

Indeed. The

American Stock Exchange Broker/Dealer Index

was sinking 3.3% and the

Philadelphia Stock Exchange Semiconductor Index

was slipping 2.1%. Most sectors were trading lower, with the most dramatic losses in financial stocks and tobacco, as well as chip and PC names. The

American Stock Exchange Tobacco Index

was down 1.4%.

Investors were not playing on the big board, as the

New York Stock Exchange is known, with the kind of caution typical near a

Federal Reserve

interest-rate decision. The Fed kicks off a two-day meeting today, and its decision will be released tomorrow afternoon. Investors remain pretty evenly split about whether to expect a half-point or a quarter-point cut to the federal funds target rate. It is already 2.5% lower than where it started the year.

Earlier this morning,

fed funds futures were pricing in as much as 60% odds of a half-point cut, but that fell to 55% odds of a half-point cut after the better-than-expected economic data was released.

Volume on the New York Stock Exchange was active this morning, up from several recent days of sluggish activity. Investors were less interested in trading tech stocks, however, and Nasdaq volume was slim.

Earnings Brigade

Brokerage giant Merrill Lynch was off 9.3% to $60.31 after it said it expects second-quarter earnings to miss analyst estimates of 82 cents a share. The company now expects earnings to come in between 52 cents to 57 cents per share for the quarter.

And Dow component

International Paper

(IP) - Get Report

was near unchanged at $35.41 after announcing it was cutting 3,000 jobs from its domestic workforce, about 10% of the company's salaried employees and the biggest round of layoffs at the company in a decade. International Paper is trying to cut costs in the face of weakness in demand for its paper products.

Fellow Dow components

Alcoa

(AA) - Get Report

,

Caterpillar

(CAT) - Get Report

and

3M

(MMM) - Get Report

were lower. This continues the trend of Old Economy stocks being hit in recent trading sessions as profit concerns about non-tech companies escalate. Even before today's losses are added, this weakness has dragged the Dow sharply lower over the past two trading sessions. Between Friday and Monday, the Dow lost 2%.

Applied Micro Circuits is just one more addition to a long line of tech companies that have

warned they will miss performance targets this quarter. After the close of regular trading Monday, the chipmaker said its first-quarter earnings would fall below expectations, "current business conditions continue to be very poor" and the process of reducing excess inventory is slower than expected.

Conservative estimates initially put the chipmaker's revenues at $400 million for the quarter -- but now it looks like the company will bring in $150 million at best. Some pros worry such a huge shortfall is evidence that Applied Micro is becoming a small cyclical company and not a large growth company, a switch that seems to be transforming many tech outfits as the economy slows.

Applied Micro was off 1.2% to $14.03. Big-cap tech stocks such as

Cisco

(CSCO) - Get Report

and

Sun Microsystems

(SUNW) - Get Report

were trading lower as well.

This morning, Goldman Sachs

lowered revenue targets and earnings expectations on a host of software companies and other tech names.

Earnings confession season -- when companies let investors know if they expect to fall short of previously set performance targets -- entered its fourth week yesterday. The past three weeks have seen a flurry of confessions from many heavy hitters and smaller fry, particularly in the tech sector. At this point, market pros say Wall Street seems to have given up on a third-quarter acceleration in earnings, while hopes for the fourth quarter

are dimming.

The Data

The market had little reaction to surprising monthly

durable goods orders

data released before the bell. It showed a strong increase during May in demand for goods designed to last at least three years. Overall, durable goods orders rose 2.9% for the month vs. expectations there would be no change. Excluding transportation, orders rose 2.7% compared with expectations they would fall 0.1%.

The indicator is volatile, but is an important measure of health in the factory sector and could indicate a turn in the manufacturing slowdown.

The consumer confidence index rose to 117.9 for June, up from a revised 116.1 in May. That's its second consecutive rise and the third increase in confidence levels over the past nine months. Economists were expecting it would only inch up to 115.7.

Back to top